Steve Eakins

Italy issues continue – where could rates be in 2017?

US interest rate decision impacts GBP/EUR

Following last night’s confirmation of the first interest rate hike in the US for 12 months, money has flown out of the euro into the US Dollar hunting a better return. This exodus from the single currency has made it cheaper to buy meaning GBP/EUR levels now sit close to a 6 month high.

Confidence in Italy remains under threat

Italy’s biggest bank, UniCredit, announced on Tuesday Italy’s largest ever share issue, in an effort to raise €13 billion in order to boost their balance sheets. The company also said that it would cut 14,000 jobs by the end of 2019. UniCredit has lost around half its value this year and was one of the worst performs in recent resilient tests ran across European banks. The news again highlighted the on-going economic crises hitting Italy following other news that the world’s oldest trading bank, Monte dei Paschi di Siena has to raise €5 billion by the end of the year to stay open.

The problems in Italy I think will be one of the main talking points going forward within Europe. This is a topic that anyone with a Euro exposure should be kept well aware of. Remembering that there is a heightened amount of political uncertainty in Italy at the moment with an interim Prime Minister before their election next year.

European consumer price update

Tomorrow’s Consumer Price Index and Trade Balance are released for the Eurozone and expected to show an improvement, something to be wary of if you are looking at buying the single currency this week. I personally think that buying Euros will become more expensive as the week comes to an end.

Euro driving factors for 2017

Moving into the New Year many clients are already looking forward to try and manage their future requirements and are trying to second guess where GBP/EUR levels may well be.

Through 2016 GBP/EUR exchange rates have been as high as 1.36 and as low as 1.10, currently GBP/EUR levels are down 12.5% compared to the start of the year but are up over 7% compared to the beginning of November when they were near their worst.

At the beginning of 2017 all eyes will remain fixed on negotiations in the UK with regards to the Brexit. Firstly, we have the results from the High Court case expected in the first 2 weeks of January.

If they overturn the previous decision many expect Sterling to fall in value quite steeply whereas if it remains unchanged for Sterling to pick up. Thereafter it is the Government’s ‘forward guidance’ of the negotiations and the triggering of Article 50 before March which will take centre stage.

The second half of the year all eyes will be fixed on Europe with a number of major members holding general elections. With Italian, German and French politicians all looking inward for votes for these elections it seems unlikely that there will be a uniformed Eurozone policy to try and take steps forward with the wider economic problems across the region. It seems fairly likely that this will help make the Euro cheaper to buy but again, not until the second half of 2017 I would think.

Further movements for GBP/EUR could present themselves following yesterdays US interest rate hike and todays Bank of England interest rate decision. Clients with a Euro buying or selling requirement may benefit from getting in touch with their assigned currency broker. Call our trading floor on 01494 725 353 or email me at hse@currencies.co.uk if youd like assistance in registering an account.

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